House of Representatives

Income Tax and Social Services Contribution Assessment Bill 1962

Income Tax and Social Services Contribution Assessment Act 1962

Notes for Treasurer's Second Reading Speech

In this Bill several important amendments to the income tax law are proposed.

Foremost among the measures to be considered by the House is a proposal to authorise an investment allowance in the form of a special income tax deduction based upon expenditure on new manufacturing plant.

In proposing the allowance the Government aims to encourage greater investment in our manufacturing industries and thus ensure, both in the short-term and the long, a greater volume of both output and employment. It seeks also to promote greater efficiency in manufacturing production from which should flow the advantages of lower costs which will benefit the Australian consumer and help our industries to seek export opportunities in markets overseas.

Honorable Members will be aware of the broad pattern of the investment allowance, since it was foreshadowed in the Prime Minister's statement on the National Economy on the 7th February last and in my own statement in the following week further details of the allowance were provided. As my statement indicated, the Government expected that representations from industry would raise matters of detail before this legislation was introduced. Many points of view have, in fact, been placed before the Government and each has received careful consideration in the light of the broad policy underlying the aims of the new allowance.

I turn now to an outline of the form the investment allowance will take in our income tax law.

The allowance will permit a manufacturer to deduct from his assessable income 20% of the capital cost of new manufacturing plant. This will be a deduction additional to the normal allowances available for depreciation of the plant. The taxation benefit of the allowance will accrue to the manufacturer in the first year in which he uses the plant for the purpose of producing assessable income or instals it ready for that purpose and holds it in reserve.

Broadly speaking, plant eligible for the allowance will be new manufacturing plant delivered to a manufacturer's premises on or after the date of the Prime Minister's announcement that the allowance would be introduced - 7th February, 1962. Special provision is made in the Bill for complex plant constructed on the manufacturer's premises by the manufacturer himself or by an independent operator. These categories of plant will qualify for the allowance if, on the one hand, construction commenced, or on the other hand, the contract for construction was let, not earlier than 7th February, 1962. In certain circumstances, components of plant delivered to the manufacturing premises on or after that date for use by a manufacturer who is constructing plant on those premises may qualify for the allowance without regard to the date on which construction was initiated.

The allowance will apply to plant used in the actual process of manufacturing and also to plant the use of which is inseparably associated with manufacture. For example, plant used in the disposal of waste substances resulting from the application of a manufacturing process will qualify for the allowance. It is a prerequisite for the allowance of the deduction, however, that the plant to be used primarily, principally and directly in manufacturing processes or in processes ancillary to manufacturing processes. It is also a prerequisite of the allowance that the plant be owned by the manufacturer.

Certain plant will not qualify for the deduction, notably motor vehicles of the kind ordinarily used for the transport fa persons or the delivery of goods, and plant acquired by a manufacturer in a secondhand or used condition.

Plant used in the mining industries may qualify for the allowance to the extent that its use is in the concentration of metals, or in processes normally undertaken after a metal has been subjected to a process of concentration. The allowance will apply to plant used in these processes when the cost of the plant is written off for taxation purposes over the estimated life of the mine or under the ordinary depreciation provisions of the Assessment Act.

The allowance will apply over the whole broad range of the manufacturing industries and will include within its scope such industries as saw milling, meat and fish curing, the production of frozen or chilled meat, the canning of foodstuffs and the deep freezing and packing of primary products including vegetables.

Further details of the allowance are set out in an explanatory memorandum that will be circulated for the information of Honorable Members.

The Bill also contains provisions designed to encourage investment of Australian capital in companies whose principal business is prospecting or mining in Australia or the Territory of Papua and New Guinea.

If such a company receives moneys that it applies towards the paid-up value of shares that it issues, it will be entitled to lodge with the Commissioner of Taxation a declaration that those moneys, or a part of them, will be expended on its prospecting or mining activities. The new provisions will then entitle a shareholder resident in Australia or the Territory of Papua and New Guinea to a deduction for the amount of his contribution specified in the declaration. As a corollary, a corresponding reduction will be made in the allowances to which the company would otherwise be entitled for capital expenditure on exploration and prospecting, mine development, plant or housing and welfare for employees.

The existing income tax law already contains comparable provisions relating to capital subscribed to oil exploration companies and, in these circumstances, the measure now proposed will not extend to amounts paid for shares in those companies. As exemption from tax is available in relation to income from mining for gold or uranium, the proposed deductions will not be available for capital to be employed in prospecting or mining for those minerals.

As a safeguard, it has been necessary to include nf the Bill provisions under which deductions may be withdrawn if a company does not expend capital received in a manner consistent with a declaration made by it.

The proposed allowance to shareholders will be available in relation to moneys paid on shares after to-day and up to 30th June, 1964.

A further proposal will be of particular interest to primary producers. The present law authorises depreciation allowances at 20% of the cost of plant used solely for agricultural, pastoral or fishing (including pearling) pursuits if the plant is first installed by the taxpayer or is ready for use before 1st July, 1962. Depreciation at the rate of 20% is also available in relation to structural improvements situated on land used for agricultural or pastoral pursuits or which are used for pearling operations. This allowance applies if the structural improvements are completed before the 1st July, 1962 or alternatively are commenced not later than that date and are completed by 30th June, 1963.

The Government proposes that these allowances be extended for a period of five years and this Bill accordingly contains provisions to give effect to that proposal.

The last of the proposals included in the Bill will, the Government believes, be a matter of satisfaction to persons leaving Australia whether they be Australian residents or visitors to Australia. As I have already announced it is proposed that effect be given to a recommendation of the Commonwealth Committee on Taxation that the system of tax clearances now operating in Australia be abolished.

The law requiring persons leaving Australia to obtain a tax clearance before departure was first introduced in 1922 as a means of protecting the revenue. Australia was at that time virtually isolated from other countries by the long sea voyages required. Since then, however, faster and more comfortable air and sea transport have revolutionised travel to and from Australia and tourists and other visitors now provide an important and increasing flow of overseas funds, amounting in 1961 to something of the order of Pd19m.

There is little doubt that tourists tend to give preference to those countries where travel is least impeded ado Australia in this respect is at present disadvantaged because most countries do not require visitors to obtain a tax clearance.

An associated aspect is that in 1959 a Convention of the International Civil Aviation Organization recommended that contracting States shall not require taxation clearances from tourists and other temporary visitors. Australia, as a contracting State, has an obligation to conform with internationally accepted standards.

Apart from these issues, increasing numbers of Australians are being unnecessarily inconvenienced by having to obtain a taxation clearance before going overseas.

Some loss to the revenue may occur as a result of the proposed repeal of the clearance provisions. However, relatively few overseas visitors derive income from Australian sources whilst in Australia and others are exempt from tax under reciprocal provisions of a number of double tax agreements concluded with English speaking countries. Residents of Australia going overseas who owe substantial amounts of tax usually have assets here which would satisfy their tax liability.

Against any loss of revenue there should be set savings in the increasing administrative costs now being incurred in the issue of clearance certificates.

As already mentioned I have arranged for the circulation to Honorable Members of a memorandum which is explanatory of all the provisions of the Bill. In these circumstances, I do not propose at this stage to comment further on the Bill, which I commend to Honorable Members.